The decision of opening a subsidiary or a branch office in Australia is influenced by numerous factors. When expanding in a foreign country, foreign companies will have to decide between these two entities, if they want to develop a commercial activity; each company structure has its own advantages and disadvantages, which will be presented in this article by our lawyers in Australia.
What are differences between a branch and a subsidiary in Australia in 2024?
First, you should know that the main difference between branch offices and subsidiaries is given by their legal personality. The branch does not represent a separate legal entity – it is seen more as a permanent establishment of the parent company abroad, but which pays taxes in Australia, while the subsidiary is a separate legal entity, generally incorporated as a private limited company or a as a public limited company. You can address to our law firm in Australia if you need legal advice on the characteristics of each company type.
Then, there are differences in terms of the foreign parent liability towards the company unit operating in Australia. In the case of the branch office, the parent company is fully responsible for any debts, while in the case of a subsidiary, the liability is limited to the shares owned by the parent company in the subsidiary’s shareholding structure.
A major difference is given by the management of the two entities. Foreign companies can decide to register either one of them based on the management model they want to follow. Thus, the branch office is the ideal vehicle for companies that want to implement the same business model in all countries where the company activates, while the subsidiary is recommended for those who want to adapt their business strategy to the local market conditions.
The subsidiary is ideal in this case, since it has its own legal entity and can take its own management decisions. It can also be entitled to develop business activities that are not the same as the ones of the parent company abroad, which is not an option for the branch office. Our team of Australian lawyerscan offer more details.
In order to be able to set up a subsidiary in Australia, the investors will need to appoint as a director of the company an Australian resident and have a business address for the company. Its incorporation will follow the standard procedure for opening a company in Australia.
In the case of a branch office, a large part of the incorporation steps will be the same as the ones applicable to the subsidiary, but the parent company will have to provide numerous documents from the authorities operating in the country where the parent company is registered.
Another important difference is that the subsidiary is an Australian tax resident, which is issued with an Australian Company Number, while the branch has an Australian Registered Body Number, but it is incorporated as a non-Australian entity; our team of lawyers in Australia can offer additional information.
However, they are different in numerous aspects, both the subsidiary and the branch office have to follow similar incorporation steps and they will be liable to the payment of the same corporate taxes. They also have the same obligations with regards to their employees in Australia, but differences may appear if we refer to accounting compliance procedures or audit.
What are the main taxes charged to Australian companies in 2024?
In this section, we will present a part of the taxes that local companies are required to pay, regardless if they operate as a branch office or a subsidiary. For more details on the withholding taxes applicable to local businesses, you can send your inquiries to our Australian law firm:
- the standard corporate tax charged in Australia is imposed at a rate of 30%;
- companies that fall into the category of small and medium-sized companies were charged with a lower corporate tax, of 26% for the financial year of 2020-2021, which was be reduced to 25% for the financial year of 2021-2022, and maintained at 25% since then;
- companies are also required to pay payroll taxes – for instance, the Queensland Government applies a tax of 4,75% for employers that pay maximum $6,5 million in employment taxes, a tax rate that has been maintained in 2024 as well (up until 1 July 2024, when taxes can be readjusted);
- Australia also applies the value added tax, which is known here as the Goods and Services Tax (GST), charged at the standard rate of 10%;
- please mind that if you are involved in the wine industry, you will be required to pay the wine equalization tax, charged at a rate of 29% (the tax rate is maintained in 2024), in addition to the 10% GST rate.
If you want to set up a branch or a subsidiary in other regions of Australia you should expect to pay different payroll taxes. For instance, in 2024, in New South Wales, the payroll tax is 5,45% for a threshold of $1,2 million.
Please address to our Australian lawyers if you need more details on how to register a branch office or a subsidiary in this country; you can also rely on our lawyers in Sydney if you want to set up your business activities in this city.
Please know that for the current financial year (2024), the Australian authorities have established a minimum wage payment of $882,80 per 1 week of work for approximately 2.7 million employees (full-time employees).
The number of visas awarded for the year of 2024 has decreased by 5,000 compared to the previous financial year (in 2024, the Australian authorities will issue 190,000 visas in total, out of which the work stream will account for 137,100 visas). Our lawyers can offer the necessary legal assistance to persons who want to relocate for employment in 2024.
The only visa stream that has maintained the same visa volume is the family stream, accounting for 52,500 in 2024. The work stream declined from 142,400 visas to 137,100 visas, the most significant decline being observed for the Business Innovation and Investment stream, down to 1,900 visas in 2024, compared to 5,000 in the previous financial year.